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SHOW NOTES FOR EPISODE 679: PASSIVE INVESTMENT OPPORTUNITIES WITH AIRBNBS
Buying, operating and running a successful AirBNB/Short-term-rental (STR) is anything but passive. You must work hard and be committed to making it work on a daily basis to succeed! In this episode, ex-techie, real estate investor, and AirBNB owner Sief Khafagi shares how investors can now enjoy the high returns of STRs as a strictly passive investor!
What You Will Learn
- How you can own AirBNBs/Short-term-rentals (STRs) and reap the high returns without managing or ever dealing with guests
- Where does data say are the best markets to invest in STRs?
- How to invest as little as $25,000 in STRs, double your investment in 4 to 7 years and even be able to use AirBNBs as an owner
- Why Blackstone says STRs is where they want to put their money
- What are the key amenities and criteria necessary for a successful STR
- Why AirBNBs are a great inflation/recession market investment
About Our Guest
Sief Khafagi
Sief Khafagi is an ex-techie turned real estate investor who has helped thousands diversify into real estate after spending nearly 5 years at Facebook. He’s syndicated acquisitions totaling more than $100M while designing & developing more than 25 properties. Today, he’s the founder of Techvestor, which helps real estate investors and busy professionals passively invest in the emerging asset class of short term rentals (aka Airbnbs).
More About Sief
- Father of two kids – he has an 18-month old and a 4 month old
- He first got interested in real estate while in high school
- He dabbled in it and lost a lot of money in 2008
- Hated real estate after that
- Moved into tech after college
- Recruited by Facebook to build their second largest engineering team
- Fun Fact: The reason he was recruited was because he kept teaching people how to beat the Facebook interview
- Took the engineering team from 89 to 1,100
- Was more like building a company, not a team
- During his time at Facebook he traveled quite a bit and often stayed at AirBNBs
- He stayed in too many bad AirBNBs
- He asked, “Why isn’t anyone fixing this problem?”
- He learned a lot about AirBNBs and the asset cost
- He realized there was a lot of low-hanging fruit
- Little to no competition institutionally
- Saw great opportunity to drive great returns
- He realized there was a lot of low-hanging fruit
- He had a large disposable income at Facebook
- So he thought he would start investing in AirBNBs
- It really took off
- Sabrina (his co-founder and partner) and he decided to open the opportunity to others to invest in what they were doing
- But before that, they actually developed software first for people who wanted to DYI AirBNBs
- No one wanted to do the work – “Use your own software”
- They said, “Do it for us and we’ll pay for it!”
Creating STR Passive Investment Opportunities
- They ended up raising $22,000,000 in first year
- They have built the largest institutional short-term rental fund based on cash flow across 8 states, 50-75 properties
- They work with Accredited Investors only
- Investors can invest as little as $25,000 into their Diversified Fund
- They pay dividends quarterly, paying 7-12% cash-on-cash returns that are generally seasonal
- In 4-7 years, you’ll double your investment
- They’re focused on cash flow and yield
- In addition, investors can use the portfolio for themselves as “owners”
- They believe that investing in STRs should be passive, not active
- You get instant diversification as an investor
- Sief says that they generate 52% more revenue and 38% occupancy than their competition
- Better designed, equipped and experience
- Better than the average mom and pop operator
- The company investment has been in existence for one year but Sief and Sabrina have been in the AirBNB space 3-5 years ago
The Short-Term Rental (STR) Industry Today
- Great for cash-on-cash yield
- In today’s inflationary market, cash flow growth is one of the most important things
- Blackstone’s co-head of real estate was in a recent article about how they are focused on cash flow growth with their preferred asset types (hospitality, with one-night rentals minimums)
- The reason for this is that you can drive revenues, every single night, at a different price point – to work with, not against inflation – you can’t do that with long-term leases
- Blackstone’s co-head of real estate was in a recent article about how they are focused on cash flow growth with their preferred asset types (hospitality, with one-night rentals minimums)
- Add to that, the tax benefits, the fact that it’s passive and the fact that the “post-pandemic” world is now more remote than ever before
Their Markets
- They built a proprietary software app that allows them to market map over 250 markets
- This app leads and guides them to the best markets
- Currently they are in:
- Scottsdale, AZ
- Clearwater, FL
- Tampa, FL
- Panama City Beach, Florida
- The Poconos in PA
- The Hudson Valley in New York
- Memphis, TN
- Blue Ridge Mountains
- They go where there data says to go
- They are making data-driven decisions regarding what markets to enter or pursue to reduce risk and loss
- They can, because of their data-driven approach, they can drive different strategies within an overall portfolio strategy
- Some of their markets-homes are in “destination markets” – such as beach and mountain towns
- Others are “metro markets” where there is more city/urban living, less destination-like
- You’ll get blends of seasonality across both strategies, plus pros and cons
- The advantage of this is gives you a diversified perspective
Types of Properties
- Each market is completely unique – real estate is hyper-local
- Each market they are in has what they call a “buy box” – which is what needs to be in that property
- How big?
- How many bedrooms?
- How many bathrooms?
- How much square footage?
- How big is the lot?
- Do you need a hot tub?
- Does it need a pool?
- Do you need to have a designer?
- Do you have an “avatar” who’s comin there?
- How do you need to price?
- Each market has different nuances
- They’re looking for the best cash flow growth/price-to-rent ratio
- Their average property is in the $550-600,000 purchase price range
- They pull $100,000 plus in revenue on an annual basis
- Highly profitable
- Lower risk
- They can exit the property in several different ways
- Which is key in light of a looming recession
- They can exit the property in several different ways
- Investors also have the added benefits of:
- Tax benefits
- They do cost segregation studies to enact bonus depreciation (100% this year)
- Equity and appreciation growth and the end of the 4-6 year hold period
- Tax benefits
- The investment is typically a 5-year hold – could be longer or shorter – they optimize for the efficiency
- Each market they are in has what they call a “buy box” – which is what needs to be in that property
STRs as a Passive Investment
- He is in the “education mode” right now to educate investors on how STRs are a viable passive real estate investment
- They have had significant interest from the institutional community
- Passive investment in STRs are, right now, where Amazon was in the beginning
- He believes that STRs are the emerging asset class of the future
- It’s where the tailwinds are
- Where smart money is and where smart capital is looking into
- Where flexible living, post-pandemic ideologies take us to
- And those are headwinds that take time to develop
- That’s why he is investing early and why they are primed to see that growth
Biggest Mistakes
- He made a lot of decisions without the data
- When he first started in the STR space, he built and designed a home for himself
- You can’t do that if you want to appeal to the right audience
- It’s not the market
- It’s not who is coming to stay at your STR
- It was an emotional thing – what he wanted!
- He didn’t build it as an “investment” – designed for the type of person who would be staying there
- When it didn’t di that well, he didn’t understand why
- He had to revamp everything and it eventually took-off
- Lesson learned: You have to understand who your market is
- Unfortunately, because the industry is very “mom and pop” still, most STR investors get very emotional about their investment
- Emotions can kill an investment very quickly
- Also, another thing that really makes a difference, is making sure you have professional photos
- The way you photo and stage the property has to be so that people envision themselves there
- Present those “Instagramable moments”!
- A mural
- An art piece
- Lights
- Outdoor photo
- Something unique in that market
- People eat with their eyes first!
Biggest Success
- They have great partnerships with the Online Travel Agencies – OTAs – AirBNB and VRBO, for example
- It’s very important that you understand “how the product works”
- Because of their tech background, they have been able to build and understand their product and their homes based on the user’s journey of these OTAs
- AirBNB and VRBO have different users/Avatars
- VRBO – Individuals of higher net worth, older in age
- Bigger homes do better
- AirBNB – Younger in age, looking for specific amenities
- Smaller homes/apartments do better
- You need to craft your photos/description differently for each to appeal to their Avatars
- VRBO – Individuals of higher net worth, older in age
- AirBNB and VRBO have different users/Avatars
- Because of their tech background, they have been able to build and understand their product and their homes based on the user’s journey of these OTAs
Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years
- Passive STR investments are something you will want to add to your portfolio
- Cash flow is more critical in your retirement years
- The risk for growth equity gets higher as you get older (in Sief’s opinion)
- Income, in the short term, is more important due to inflation and also just time
- It’s about protecting and preserving what you have and optimizing for higher cash yield so you can continue to live the life you want
Current Business
- He likes that they are doing something that no one thought was possible
- Buying a single STR is something many people have thought about
- But scaling an institutional STR portfolio at their size has never been done before
- Everyone thought it would be nearly impossible but they continue to break through
- He believes he has the best operation team in this space
- He’s excited about the challenge to do something that no one has done before
Rap-It-Up
- Favorite real estate book: Made to Stick by Chip and Dan Heath
- Favorite business book: Contagious by Jonah Burger
- Most valuable web site for success (other than your own): The Wall Street Journal (to monitor rates)
- Favorite app: AirBNB
- If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to re-launch your real estate investing business? Host an event. Invite everyone I knew and raise as much money as possible, as quickly as possible to get the thing started!
How to Reach Sief
- Website: TechVestor.com
- Email: Sief@TechVestor.com
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